Sustainable Finance Newsletter-Blue State pension funds invest more money

By Ross Kerber

Sept 20 (Reuters) - Efforts to restrict or promote the use of environmental, social or governance (ESG) considerations by U.S. public pension funds this year got me wondering about the political geography of these assets.

It turns out that systems in Democratic states have more money, according to a review that researcher HIP Investor produced when I asked.

It's not an overwhelming lead, as you can read about below, but it raises some questions for any asset managers thinking coldly about where they'll find the most receptive markets when setting policies on issues like climate change or workforce diversity.

You will also find below some links on airlines' climate claims, "peak oil" forecasts, and the ongoing U.S. autoworkers' strike.

I invite you to connect with me on LinkedIn where I welcome comments and feedback. Or if you have a news tip, potential content, or general thoughts please email me at

This week's most read * Fly responsibly? Airlines face a storm over climate claims

* Aramco, Exxon CEOs push back against forecasts of peak oil demand * Apple moves to defuse French iPhone 12 dispute as EU scrutiny steps up

Blue States have more pension money than Red States Public pension systems in states run by Democrats have more money than those in states run by Republicans, according to a review by HIP Investor, an ESG-focused rating agency, though analysts said the gap may not be enough to simplify how asset managers should position themselves to win government business.

Pension plans in so-called Blue States with Democratic-dominated leadership managed some $2.57 trillion in 2021, the latest year for which complete data is available, compared with $1.54 trillion run by systems in Red States with Republican leadership at the same point. Another $994 billion was managed by retirement systems in Purple States with a mix of elected officials, HIP Investor found.

The relative amounts matter for big fund managers facing pressure on many sides over their investments and proxy voting policies.

For its review, HIP drew on the Public Plans Data website run by a group including the Government Finance Officers Association and a Boston College research center.

The dataset tracks 121 state-level retirement plans and 108 more administered more locally such as by cities and counties.

To that, HIP judged each state's "political affiliation." States where the governor and legislative majorities were both of the same party were assigned "Red" or "Blue." States where there was a split between the governor and legislative control were judged Purple.

Of course total assets is just one of many aspects of public pension plans, many of which face significant gaps in their funding ratios.

As of August the 100 largest U.S. public pensions had assets of $4.591 trillion, equal to 75.3% of their liabilities, according to a separate report from pension consulting firm Milliman. It has also found some of the lowest funding ratios were in Democratic strongholds Illinois and Connecticut.

HIP's findings were no surprise. The $462.8 billion in the largest Blue State plan, CalPERS, as of June 30 was more than twice the $187.6 billion in the Teacher Retirement System of Texas at the same point.

But I found some disagreement among experts I spoke with on the question of how the extra Democratic-leaning money might color fund managers' decisions on controversial areas like proxy voting or whether to own fossil fuel stocks, as they seek to win state contracts.

"Very few firms are purist when it comes to ESG, they are capitalist first," said Neil Bathon, managing partner of funds researcher FUSE Research Network. While many firms will offer investment screens to clients who want them, being vocal about politicized issues can backfire, he said.

However Daniel Pianko, managing director of Achieve Partners, an impact investment firm focused on education, said if states continue to set vendor requirements on asset managers over their ESG policies, an outcome could be that the biggest financial firms "go towards Blue states with smaller firms and new companies chasing the conservative (or) anti-ESG market."

That could reduce returns for the conservative systems, since their managers will lack economies of scale, Pianko added.

HIP Investor CEO Paul Herman's view is that fund managers must consider future risks as well as returns, justifying many concerns about issues like the environment and fair pay for employees, and helping returns over the long run.

“Ultimately this culture battle will have to engage with the reality of major forces and future impacts, like climate change,” he said.

Company News * Nearly three years after a graft scandal, Mexican state energy company Pemex has resumed dealing with Vitol, three sources with direct knowledge told Reuters. * The United Auto Workers union said it would strike more plants if it fails to make progress in talks with Ford, General Motors and Chrysler-parent Stellantis.

* Alphabet's Google said its search engine was wildly popular because of its quality, arguing against a U.S. accusation it broke the law to hold onto its massive market share.

On my radar * California Governor Gavin Newsom said he will sign a landmark bill requiring companies to disclose their carbon footprints, but he said there is some "cleanup" language still forthcoming.

* About 10% of large cap S&P 500 companies use ethics & compliance measures in their executive pay programs, according to a recent note from compensation consultant Farient Advisors. They are most common at financial companies and least common among real estate firms.

* The Reuters IMPACT: Global Sustainability Report is now available here. One finding that jumped out is that among respondents, "sensors and smart meters" were judged more effective than other sustainability technologies such as for data analysis or emissions accounting.

(Reporting by Ross Kerber; Editing by David Gregorio)